Master Market Segmentation

Market Segmentation: A Detailed Overview

Market segmentation is the process of dividing a broad consumer or business market into sub-groups of consumers based on shared characteristics.
Researchers typically look for common characteristics such as shared needs, common interests, similar lifestyles, or similar demographic profiles.
The aim of segmentation is to identify high yield segments that are likely to be the most profitable or that have growth potential.
Many different ways to segment a market have been identified, such as demographic segments, behavioral segments, or even country segments.
Market segmentation assumes that different market segments require different marketing programs – that is, different offers, prices, promotions, distribution, or some combination of marketing variables.
Insights from segmentation analysis are subsequently used to support marketing strategy development and planning.
Marketers use the S-T-P approach; Segmentation → Targeting → Positioning to provide the framework for marketing planning objectives.
The process of segmenting the market is deceptively simple, and marketers tend to use the so-called S-T-P process as a broad framework for simplifying the process.
A key consideration for marketers is whether to segment or not to segment, and depending on the company philosophy, resources, product type, or market characteristics, a business may develop an undifferentiated approach or differentiated approach.
In consumer marketing, it is difficult to find examples of undifferentiated approaches. Even goods such as salt and sugar, which were once treated as commodities, are now highly differentiated.
The most common bases for segmenting consumer markets include geographics, demographics, psychographics, and behavior.
Geographic segmentation divides markets according to geographic criteria, and markets can be segmented as broadly as continents and as narrowly as neighborhoods or postal codes.
The geo-cluster approach combines demographic data with geographic data to create richer, more detailed profiles.Overview of Consumer Segmentation
Consumer segmentation is used by various public sector departments and organizations such as urban planning, health authorities, police, criminal justice departments, telecommunications, and public utility organizations such as water boards.
Demographic segmentation is based on consumer demographic variables such as age, income, family size, socio-economic status, etc. and assumes that consumers with similar demographic profiles will exhibit similar purchasing patterns, motivations, interests, and lifestyles.
Psychographic segmentation is measured by studying the activities, interests, and opinions (AIOs) of customers and enables marketers to identify tightly defined market segments and better understand consumer motivations for product or brand choice.
Behavioural segmentation divides consumers into groups according to their observed behaviours and is superior to demographics and geographics for building market segments.
Purchase/usage occasion segmentation focuses on analyzing occasions when consumers might purchase or consume a product and assigns more than one segment to each unique customer, depending on the current circumstances they are under.
Benefit segmentation was developed by Grey Advertising in the late 1960s and enables the market to be divided into segments with distinct needs, perceived value, benefits sought, or advantage that accrues from the purchase of a product or service.
Attitudinal segmentation provides insight into the mindset of customers and the attitudes and beliefs that drive consumer decision-making and behaviour.
Hybrid segmentation combines two or more variable bases into a single segmentation and is driven by the development of more powerful AI and machine learning algorithms.
Generational segmentation refers to the process of dividing and analyzing a population into cohorts based on their birth date and assumes that people's values and attitudes are shaped by the key events that occurred during their lives.
Cultural segmentation is used to classify markets according to their cultural origin and enables appropriate communications to be crafted for particular cultural communities.
Online market segmentation is similar to the traditional approaches and enables the analysis and segmentation of consumers across a diverse set of attributes.
The marketer's next task after determining the segments and developing separate offers for each core segment is to design a marketing program that will resonate with the target market or markets.
Positioning is the final step in the S-T-P planning approach, and it refers to decisions about how to present the offer in a way that resonates with the target market.Approaches for Market Segmentation
Segmentation selection depends on various factors such as marketer's skill level, time constraints, resources, and availability of data.
A-priori segmentation happens when a theoretical framework is developed before the research is conducted. The target variable is already known and the typical analysis includes simple cross-tabulations, frequency distributions, and logistic regression analysis.
Post-hoc segmentation makes no assumptions about the optimal theoretical framework. Analysts determine the segments that are the most meaningful for a given marketing problem or situation. Empirical data drives the segmentation selection and clustering analysis or structural equation modeling is used to identify segments.
Marketers often engage commercial research firms or consultancies for segmentation analysis if they lack the necessary statistical skills.
Common statistical approaches and techniques used in segmentation analysis include discriminant analysis, regression analysis, cluster analysis, factor analysis, and conjoint analysis.
Marketers use various data sources for segmentation studies and market profiling, including demographic, psychographic, geographic, and behavioral data.
Data can be obtained from internal sources such as CRM databases, web analytics, and sales data, or external sources like government publications, trade associations, and market reports.
Proprietary segmentation databases of companies like Nielsen, Experian, and Acxiom are also used for segmentation analysis.
Segmentation can help marketers understand consumer behavior, target specific markets, tailor marketing efforts, and improve customer satisfaction.
Segmentation can lead to increased sales, better ROI, and improved brand loyalty.
Segmentation can also have disadvantages like increased costs, difficulty in implementation, and the possibility of missing important segments.
Segmentation can be improved by using multiple segmentation methods, validating segments, and monitoring changes in segments over time.